Parliament to Bank: We Will Be Watching You

A bus carrying an advertisement for a money lending firm drives past the Bank of England in London’s financial district.

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After spending Tuesday morning grilling the three new members of the Bank of England’s new Financial Policy Committee, a critical cog in the U.K. economic machinery which spots threats to the financial system, British lawmakers on Wednesday waved through their appointments.

But the blessing came with a warning, essentially: we will be watching you.

Sure, the U.K. parliament’s Treasury Select Committee, headed by the Conservative politician Andrew Tyrie, has no power to block BOE appointments approved by Chancellor of the Exchequer George Osborne in the way that lawmakers in the U.S. can reject President Obama’s nominees for the Fed.

In the end, the committee judged that Clara Furse, Richard Sharp and Martin Taylor possess the “professional competence and personal independence” necessary to serve as external members of the central bank’s Financial Policy Committee, according to a report published Wednesday. There are four slots on the 10-person panel, which is charged with spotting threats to the financial system, open to candidates from outside the BOE and other agencies.

Lawmakers said they have “serious concerns” over her appointment, relating to the lessons she learnt from her time on the board of lender Fortis NV, an early European casualty of the recent financial crisis, bailed out in 2008, as well as her “awareness of the importance of asserting the independence of the FPC.” Ouch.

Had the committee opposed the appointment of Ms. Furse or the other nominees Mr. Osborne would have been faced with a dilemma: to take lawmakers’ advice and find new candidates or to ignore them and risk parliament’s ire.

Former Prime Minister Gordon Brown, when he was at the Treasury during Tony Blair’s premiership, took the latter route, installing economist Chris Allsopp on the BOE’s rate-setting Monetary Policy Committee in 2000 despite the Treasury committee’s opposition. (Mr. Allsopp, it should be noted, soon demonstrated his independence, voting 11 times against the majority decision in 37 MPC meetings).

Mr. Tyrie said on Wednesday the FPC “will sometimes have to take decisions that are politically unpopular” and it is vital that it is independent from government influence and doesn’t fall prey to groupthink. External members must challenge the views of BOE officials, he said.

“We will expect to see evidence that the concerns raised in this report have been taken on board,” Mr. Tyrie said, as if there’s now any doubt.